30 July · August 2008NATIONAL

Canada’s abundant resources have met a perfect

match in China’s overwhelming appetite for raw

materials to sustain its unprecedented growth.

Lawyers who specialize in this emerging field

explain how political tensions, culture clashes, and

the enduring significance of guanxi are shaping

this new relationship.

By Pablo Fuchs

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If you doubt the impact of China’s dramatic emergence asa force to be reckoned with globally, look no further thanyour corner gas station. China’s extraordinary thirst forsources of energy to fuel its remarkable double-digit GDP

growth is behind the soaring cost of filling up your car or heat-ing your home.

In Canada, the price of gasoline hit an all-time high of132.3¢ a litre in late spring — double the price charged asrecently as 2002. “Given the scale of China’s demands, fromrunning its factories to preparing for the 2008 OlympicGames, the rise in demand for [resources] has helped pushcommodity prices to unprecedented levels,” noted theNovember 2007 Statistics Canada report Trading with a giant:An update on Canada-China trade.

China’s rapid ascendance has shaken Canada to its eco-nomic core. Global demand for raw materials, led by China,has driven skyward the price of commodities such as oil and

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James PasiekaHeenan Blaikie LLP, Calgary

“The dynamics between Chinese and U.S. companies

are not very different, but the ways of doing business

and establishing relationships are.”

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LLP’s Vancouver office. “Canada offers a number of oppor-tunities for China. It has base metals, minerals, oil and gas,”he notes.

But the emphasis, of course, has been on the demand forenergy: “The Chinese government has made energy securi-ty a key priority,” says Potter. “Although they are lookingto develop their own energy resources, they’re also lookingfor imports.”

That strategy is one that Canadians have seen before —especially from their southern neighbours, says CyndeeTodgham Cherniak, counsel with Lang Michener LLP’s inter-national trade law group in Toronto: “The U.S. typically looksfor resources offshore to avoid depleting resources at home,”she notes. “China is resource-rich, but it is taking advantageof opportunities abroad.”

The impact of this demand on Chinese-Canadian tradeover the last few years has been staggering. In 2007, Canada’s

gas, base metals and minerals. Resource-rich western pro-vinces have seen spectacular growth, even supplanting tradi-tional central powerhouses Ontario and Quebec as the coun-try’s wealthiest jurisdictions. It has been a bonanza forCanadian businesses in the resources and energy sectors —and for the lawyers who represent them.

“The demand for commodities from China is relentless,”says James Pasieka, a partner with Heenan Blaikie LLP’s busi-ness law group in Calgary, who specializes in energy issues.“China has a burgeoning middle class, the size of the entireU.S. population, that’s always looking to do more. And whenthat’s translated to the nation as a whole, the demand forresources to fuel that growth is virtually insatiable.”

Canada’s wealth of natural resources complements Chinavery well, says Pitman Potter, a professor of law at theUniversity of British Columbia Faculty of Law and a consul-tant on China business matters to Borden Ladner GervaisR

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Pitman PotterBorden Ladner Gervais LLP,Vancouver

“The Chinese government has made

energy security a key priority.

Although they are looking to develop

their own energy resources, they’re

also looking for imports.”

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has increased massively in the last few years,” says VincentH. Kou, director of legal services in China and Asia for RioTinto Alcan in Shanghai. “With our 50/50 joint-venturesmelter in China to produce aluminum for that market, ourapproach is much more focused on commercial transactionsand selling to China.”

Not only is China developing joint ventures with Canadianresources companies, but it is also investing a lot more in suchCanadian corporations — especially those in the mining sectorwith significant exposure here and abroad.

“Chinese companies have invested in Canadian companiesthat are mining copper and other base metals in places such asKazakhstan, Argentina and Chile,” says Wei Shao, counsel

exports to China totalled $9.2billion, according to a CanadaChina Business Council (CCBC)brief presented to the StandingSenate Committee on ForeignAffairs and International Tradeon April 29. That’s more thandouble the $4 billion in exportsCanada sent China’s way in2002, the report states, addingthat “resources dominateCanada’s exports to China.Exports of industrial goods makeup half of these shipments. Thissector has registered the largestgains, tripling since 2002.”

Building partnershipsBut while the Middle Kingdom’sdemand for resources has affectedtrade significantly, Chinese compa-nies have recently been moved toembed themselves directly inCanada’s commodities market-place, in order to further securesteady supplies of energy, metalsand minerals. Chinese importershave developed close ties with theirCanadian trade partners.

Calgary-based oil and gasgiant Husky Energy Inc., forinstance, has been active withChina since signing an agreementwith China National OffshoreOil Corp. (CNOOC) in July2001 for a 40 percent stake in theWenchang offshore oil fields.Currently, the companies are pro-ducing 13,000 barrels per dayfrom that project, which are soldprimarily to buyers in China andthe Pacific Rim. Work is alreadyunderway to expand drilling inthose oil fields this year.

In addition, Husky announced this past April that anoth-er agreement had been reached with CNOOC in which thelatter will acquire a 50 percent stake in Husky’s Madura gasand natural gas liquids field, located offshore East Java,Indonesia, for $125 million. “The production facility in off-shore China gives us a platform to work from,” says JimGirgulis, Husky’s vice president, legal and corporate secretaryin Calgary.

Girgulis notes that the joint venture represents just a smallpart of the company’s business, because its main clients are inthe U.S. and Canada. “We’ve been doing a fair share of explo-ration [there already], and like a lot of companies, we’re look-ing for opportunities.”

Then there’s Montreal-based aluminum producer Rio TintoAlcan Inc., which became a subsidiary of London-based multina-tional mining giant Rio Tinto PLC in November 2007. In 2003,when the company was known as Alcan Inc., it formed a jointventure with Qingtonxia Aluminum Co. and the Ningxia PowerDevelopment and Investment Co., in which it obtained a 50 per-cent share in the pre-bake smelter located in Ningxia, China.

“Historically, Alcan didn’t sell a lot into China, but this

32 July · August 2008NATIONAL

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Wei ShaoBlake Cassels & Graydon LLP, Vancouver

“Now it’s the other way around. Chinese

investments into Canada far exceed Canadian

investments into China.”

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34 July · August 2008NATIONAL

Le dragon affamé

Si vous doutez encore de l’impact qu’al’émergence de la Chine à l’échelle mon-diale, vous n’avez qu’à vous rendre à la

station-service la plus près. La soif de ressourcesengendrée par cette croissance remarquableest parmi les principales raisons pour lesquellesle coût d’un plein a littéralement explosé.

« Cette demande est insatiable, dit Me JamesPasieka, associé au bureau de Calgary deHeenan Blaikie, et qui se spécialise dans lesecteur énergétique. La Chine a une classemoyenne foisonnante, presque de la taille de lapopulation des États-Unis. Et ils en veulent tou-jours plus. »

L’opulence canadienne en ressourcesnaturelles complémente à merveille l’appétitde la Chine. « Le Canada offre quantitéd’opportunités pour la Chine, avec ses matéri-aux bruts, ses minéraux, son huile et son gaz »,note Pitman Potter, professeur de droit àl’Université de Colombie-Britannique et con-sultant en relations commerciales avec laChine auprès du cabinet de Vancouver deBorden Ladner Gervais.

Les exportations canadiennes en Chine ontpresque doublé au cours des cinq dernièresannées. De 4 milliards $ en 2002, elles sontpassées à 9,2 milliards en 2007, selon les don-nées du Conseil commercial Canada-Chine.

Bâtir des partenariatsPour assurer davantage leur approvision-nement, les chinois ont commencé récemmentà adopter une autre stratégie : celle des’immiscer davantage dans le marché des pro-duits de base. Des importateurs ont développédes liens si étroits avec leurs partenairesd’échanges qu’ils sont à toutes fins pratiquesdevenus des partenaires d’affaires.

Le géant Husky Energy, de Calgary, en est unexemple. En 2001, la compagnie a acquis 40 %des champs pétrolifères au large de Wenchangde la China National Offshore Oil Corp. Lamajeure partie de 13 000 barils produits parjour sont vendus en Chine ou dans le pacifique.

Investir directementMais quand vient le temps d’assurer leur ap-provisionnement en énergie, les compagnies

chinoises vont plus loin. Dans les sables bitu-mineux de l’Alberta, en particulier, ils achètentdes parts des compagnies de prospectionminière ou, plus récemment, acquièrent eux-mêmes des droits de prospection.

Cela a commencé en 2005, lorsque la ChinaNational Offshore Oil Corp a acheté 16,7 % deMEG Energy Corp., pour 150 millions de dol-lars. D’autres ont suivi le même exemple.

Mais la plus grande avancée a eu lieu audébut de 2007, lorsque la China PetroleumCorp. est devenue la première entreprise chi-noise à contrôler un projet canadien dans lessables bitumineux. Le gouvernement albertainlui a cédé les droits de 11 champs, un territoired’environ 260 km carrés.

« Ça fait partie de leur apprentissage,d’apprendre à connaître le risque au Canadaet de savoir gérer leurs propres attentes »,explique Me Wei Shao, un membre importantdu groupe de pratique chinoise du bureau deVancouver de Blake, Cassels & Graydon.

Pour des avocats comme Mes Shao ou Pasieka,ces tendances ont été un élément déterminantdans le développement leur pratique. Audépart, explique Me Shao, Blakes a ouvert unbureau en Chine pour veiller aux investissementscanadiens là-bas.

« Mais maintenant, c’est l’inverse, dit-il. Lesinvestissements au Canada excèdent large-ment ceux faits Chine. »

Ces évolutions emmènent évidemment leurpart de changements dans la pratique légale.Les décisions des administrateurs chinois seprennent plus rapidement, précise Me Shao. Etles incursions chinoises en sol canadienrequièrent différentes approches, du simpleconseil au travail d’équipe.

GuanxiMais au-delà de toutes considérations, quandvient le temps de faire affaire avec les Chinois,tout revient à un mot : guanxi. De manièresimplifiée, cela se traduit par « relations » ou« connexions personnelles ».

Le rôle du guanxi est absolument fonda-mental au développement des relationsd’affaires, précise Me Pasieka. « Tout est basésur la confiance, sur ce besoin que de l’eau ait

Des juristes expliquent comment la politique,la culture et le guanxi déterminent les relations entrele Canada et la Chine.

coulé sous les ponts et qu’une relation se soitdéveloppé et ait grandi au fil du temps », dit-il.

Le guanxi nécessite une compréhension dela mentalité chinoise, ajoute le professeurPotter. Par exemple, de nombreuses transac-tions peuvent être conclues entre des entre-prises américaines et canadiennes par leursavocats agissant seuls. Mais les choses sont dif-férentes avec les compagnies chinoises. Larelation de confiance entre les parties « estconsidérée comme plus fiable que le systèmelégal pour permettre de prédire les comporte-ments », explique-t-il.

Obstacles politiquesSi les efforts pour bâtir des liens de confianceentre gens d’affaires et avocats se multiplient,des obstacles subsistent. L’un d’eux, et non lemoindre : le déclin des relations politiquesentre les deux pays.

Peu après son arrivée au pouvoir, le premierministre Stephen Harper a critiqué publique-ment la Chine pour son bilan répugnant enmatière de droits humains. La sortie a fait con-traste avec la position canadienne sous leslibéraux.

Cette nouvelle situation sera-t-elle dom-mageable pour les échanges commerciauxentre les deux pays? Les opinions diffèrent.« Je n’ai jamais eu de problème à cause decela », indique Me Todgham Cherniak, de lafirme Lang Michener de Toronto.

Dans une opinion soumise au comité séna-torial des affaires étrangères et des échangesinternationaux, en avril, le Conseil commercialCanada-Chine affirme que le contraire. « Desmembres nous ont rapporté que des contratsont été perdus à cause du refroidissement desrelations entre nos dirigeants politiques », adéclaré le président, Peter Harder.

Entre l’arbre et l’écorceMalgré l’incertitude, des juristes continuentde travailler d’arrache-pied pour assurer lasurvie à long terme de ces relations. « Lameilleure manière de s’assurer que les Chinoiss’améliorent sur ce plan est de rester ouvert etimpliqué », croit le professeur Potter. Il sug-gère aux juristes de s’assurer que les contratsrespectent les normes internationales enmatière d’environnement, de travail et de res-sources humaines.

Ainsi, tandis que des investisseurs chinoiscontinuent de chercher des moyens d’assurerleurs approvisionnements ici, les avocats quiont développé des relations là-bas seront,selon Me Shao, « les facilitateurs et les bénéfi-ciaires de cette relation qui grandit ». N

and key member of Blake, Cassels & Graydon LLP’s Chinapractice group in Vancouver. “They’re paying a lot of atten-tion to Canadian capital markets because the Toronto StockExchange (TSX) has the world’s largest concentration of min-eral companies.”

Direct investmentBut when it comes to securing sources of energy, Chinese com-panies are taking the next step and increasing their exposureto Canadian oil — specifically in Alberta’s Athabasca oil sands— either by buying stakes in exploration companies or, more

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recently, by acquiring explorationrights themselves.

It began in 2005, when CNOOCacquired a 16.7 percent stake inCalgary’s MEG Energy Corp. for $150million, and Sinopec InternationalPetroleum Exploration and ProductionCorp. acquired a 40 percent stake inCalgary’s Synenco Energy Inc.’s North-ern Lights oil sands project for $150million. (Synenco has since beenacquired by France-based energy giantTotal SA.)

But perhaps the greatest advancecame in early 2007. China NationalPetroleum Corp. became the firstChinese firm to control a Canadian oilsands project, after Alberta’s provin-cial government granted China’slargest oil producer exploration rightsfor 11 fields covering an area of about260 square kilometres.

“Instead of investing in or acquir-ing Canadian interests in the oilsands, China’s state-owned oil com-panies are applying for oil and gas[exploration rights] just like smallAlberta companies,” Shao says. “Thisis part of their learning curve, toknow what the risks are in Canadaand to manage expectations.

“They’re also doing the explorationson their own to gain expertise withrespect to Canadian transactions,” headds. “And if you talk to major Chinesecompanies, their skill set has improved.They are now more sophisticated anddo their homework far better than theydid a few years ago.”

Naturally, for Canadian lawyerssuch as Shao, Pasieka and TodghamCherniak, the rise of China has been aboon to their businesses. Shaoexplains that the original purpose ofBlakes’ Shanghai office — in opera-tion since October 1998 and currently the only Chinese officeof any Canadian law firm — “was to look after Canadianinvestments. But the flow into China has been slow recently.

“Now it’s the other way around. Chinese investments intoCanada far exceed Canadian investments into China,” saysShao, who travels ten or more times a year to that country. “Asa result, our focus has changed, and we’re catering to severalclients in China through the Beijing office, which works close-ly with our Canadian offices to provide coordinated services.”

As the direction of the business has changed, so too has theway business is conducted. “We’ve seen a remarkable changein the way Chinese do business,” Shao says. “Decision-mak-ing took a long time in the past, because the command andcontrol in state-owned companies was decided at the top.Now, there is more flexibility, and the decision-making timehas been shortened significantly. This is a result of a morerelaxed regulatory approval system in China.”

And with so many Chinese companies now interested inCanada as an investment destination, lawyers who representChinese companies must deal with new levels of complexity.

Some clients need to be hand-heldthrough the entire process, while othersrequire due diligence work with accoun-tants and companies’ advisors.

Shao explains: “In some situations,we get involved early on and work as ateam during business registrations; inother situations, the companies can doit on their own because the level ofsophistication has changed. It’s not dis-similar to how we act for Canadianclients in China.”

It’s all about guanxiThe most important element of this prac-tice area is not the work itself, but howrelationships are handled. “The dynam-ics between Chinese and U.S. companiesare not very different, but the ways ofdoing business and establishing relation-ships are,” Pasieka says. Adds TodghamCherniak: “Structuring a deal is no dif-

ferent for a Chinese company than for any other foreignbuyer of Canadian natural resources. The negotiating stylesare different, however, as there are different cultural aspectsto the negotiation.”

It all comes down to one word: guanxi. At the most basiclevel, guanxi translates into “relationships” or “personal con-nections.” In reality, the concept is far more complex. “It’svery difficult to describe,” says Todgham Cherniak of guanxi’srole in the negotiating process, “but at the heart of it,Canadian lawyers who act for Canadians going into China, orvice versa, have greater respect for humility and learn how toact in a firm but humble manner.”

The role of guanxi “is absolutely fundamental” to devel-oping business connections with Chinese businesses, Pasiekasays. “It’s based on trust, where there needs to be some ‘waterunder the bridge’ that’s been developed and fostered overtime.” But guanxi is not only about building those connec-tions, it’s also about understanding a mindset that is quitecomplex, Pasieka adds: “[It’s] like layers of an onion. You peelone layer back and there are many more underneath.”PA

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Cyndee Todgham CherniakLang Michener LLP, Toronto

“We can respect the fact that

governments have positions, but if

you respect each other as people,

then the relationship can continue to

thrive and prosper and the news

of the day does not get in the way.”

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